When it comes to collecting on overdue accounts, a small business can be at a disadvantage. Monitoring overdue accounts is a drain on limited resources, and the amounts involved are often too small to make it worthwhile. Being proactive is the most effective collection strategy for the small business. And the skills you acquire in the process will benefit your business in many ways.
Make the payment schedule an integral part of every sale. Ask prospective customers up front if the existing credit terms are agreeable. If they aren’t, work out a mutually acceptable compromise and use it as a basis for the sales contract. That way, at collection time, your customers cannot complain that the payment terms are unacceptable or just not what they expected.
Keeping meticulous records is very important, especially if you have an employee doing collections for you. Create a special file for each one of your clients with such information as how many invoices it needs for its records and when it cuts checks every month. Maintaining a dated log of collection calls (with details about what was said) puts your collections person on a much firmer footing when dealing with a difficult or irate client. Then, if the client insists on speaking to you directly, you’ll have all the facts at your fingertips.
Another effective strategy is to be as accurate as possible when generating invoices. A simple mistake at your end (such as a pricing error) can give companies a convenient excuse to delay payments for a week or more while the corrected invoice winds its way through the proper channels.
When it comes to collecting overdue accounts, excuses come with the territory. And when you’re dealing with someone over the phone, it can be hard to remember what company policy is on a particular issue. Drafting “company position” statements for the most commonly-heard collections excuses can help you and your employees respond to them in a consistent way and take appropriate action to overcome them.
Another way to do this is by preparing an integrated “collections campaign” — a series of four or five different collection letters ranging from polite reminders to firm requests for immediate payment. Each letter should contain an offer to work out a convenient repayment schedule for customers whose nonpayment is caused by short-term financial difficulties. Send these letters at regular intervals (with copies of the overdue invoices) to delinquent customers. Keep track of when they were sent and the results.
Sometimes technology offers the best solution for collections headaches. Sending overdue invoices by fax-modem can save you from such lines as “We don’t have the paperwork yet” or “It must have gotten lost in the mailroom somewhere.” And a good accounting software program can help you track accounts receivable from month to month.
But remember, as useful as computers are for accounting, a computer failure is not a viable excuse for nonpayment of an invoice. If one of your creditors pleads computer trouble, have the company issue a handwritten check.
